Good tax write offs for high income?

[Sean H.]

Besides the obvious write offs: gas, home office, etc. What are some of the worthwhile things you have bought that have a huge write off? At over 200k/year, with the progressive system your top end income is nearing 50% (unless you live in a tax free state). What are some unrelated or not so obvious things you have purchased or setup that were worth the write off? 

-I haven't really looked at the rebates on solar or other green purchases to see whether the deduction is very high on these anymore.
-I guess this one is real estate related, but if your set up your own property management company, and you manage your own properties you  have a whole new set of concurrent write offs. 
-section 179. New vehicle (truck). I assume most of you don't do your own construction, but for me this means the justification of a nice trailer or piece of heavy machinery (which i will actually use a lot for my business). 

[Michael Plaks]

@Sean H.

I have not met you, Sean, so in case you're easily triggered, please do not read the rest of my response. :)  Same soft request to everybody else. And now I rant.

There is NO such thing as good tax write-offs for high income. Countless books, blogs, webinars etc claim that these write-offs exist, they are just "hidden" so you need to buy their "Tax Goldmine" books and courses and hire the authors. It is one big pile of... hype. So again, in case you were busy looking at memes when I said it the first time: there is NO such thing as good tax write-offs for high income if we're talking about high W2 income. High self-employment income is a different game.

Here is what Grant Cardone and all the other wealth preachers do not explain when they mislead you and everybody else. Apology for my condescending tone, it is for the sake of clarity.

1. Write-offs are not free. If you run a regular side business selling goods or services, including wholesaling, development, house flipping or being a Realtor, you can only write off what you spend. You pay money first, and then you have a matching write-off. The point of being in business is to make money, so your business income should be more than your business expenses. And that pushes your taxes higher, not lower.

If your business has more expenses than income, then yes, you do have a tax loss against your W2 income. But it means that you are losing real money in the process! Why this remarkably simple concept eludes so many people is beyond me. 

2. The myth of writing off your life. I know the answer to my previous why. You've been told that you can write off your life: your truck, your clothes, your groceries, your house bills, your vacation and your kids allowance. Just need to learn the "secrets of the wealthy." Well, there is a grain of truth in it. You can write off expenses of driving your truck for business, but it is because you - again! - have to spend your money for gas and maintenance. It does cost you more to use your truck for business, so you write it off.

The rest - not so much. You can hire your kids, but they actually have to do real work for you. You can plan your vacations around business conventions and other legitimate business needs, but you will have to spend significant time attending to business during your vacation, and this can cost you your marriage. And do you really want to limit your travel this way? 

You can never write off your clothes except for logo-ed uniforms. You cannot write off your groceries other than for a business meeting you host at home. And taking your wife out for your anniversary is not deductible, either. Your dog is your "security system", so it is not dog food, it is business supplies. Sure.

3. But rentals! Depreciation! Cost segregation! Yes, rentals are a sweet exception to that #1 rule above. You can have actual cash flow from the rental properties, and then you can write off depreciation, resulting in a paper loss. Yes, it is true: higher income and no higher taxes. But no lower, either! Oh bother, as Winnie the Pooh would say.

This is because at your $200k level of income you cannot claim any losses from rentals. It does not matter how big they are. You can double them by finding all the minor write-offs I mentioned in #2 above, you can quadruple them with cost segregation. And you still cannot take any of these losses against your W2 income. None. These losses are not wasted, you will be able to catch up when you sell your properties, but not before that. Kinda takes fun out of finding those misc deductions and loopholes.

4. But real estate professionals! Gotta love it when people recommend that you "become a real estate professional." You can become an MBA if you go to business school. You can become a father, I assume you know how. You cannot "become" a real estate professional. This is a tax classification that you must qualify for. If you do - then indeed you open up a huge opportunity for tax savings. 

Unfortunately, you cannot qualify while holding a normal 40-hr/week W2 job. This is because the tax law requires you to spend more time every week doing real estate than doing your job. So, you will need 81-hr work weeks, year-round. 40 hours at your job plus another 41 hours in real estate.

Your wife may qualify as a RE Pro if she does not have a regular 40-hr job and spends a lot of time in real estate, minimum 750 hours per year. If she qualifies, then you can catch a piggyback ride. Marry wisely.

5. But retirement plans! Well, I assume you max out on your 401k already. Holding rentals does not create additional opportunities for funding retirement plans, without serious jumping thru hoops. You have a small opportunity to fund Roth IRAs, but it does not reduce your annual tax burden. That's about it.

6. Tax strategists. Sure, we can do a lot of good tax planning for you. Still, we cannot turn water into wine and cannot eliminate taxes on your W2 income. 

By the way, one of my peers who responded to your post happens to be your semi-neighbor (Charlotte), and she is one of us who will not drown you in hype. Give her a call: @Natalie Kolodij